What Are the Current Business Loan Interest Rates?

For a businessperson or a business owner, it is necessary to have ideal funding in place to have the ability to grow and expand their business. For some businesses, the rates charged on business loans make it possible for them, while others find it challenging, hampering their development. 

In India, the loan rate varies from one lender to another and depends on the type of loan that one is interested in or the borrower himself. To take any step when it comes to business finance requires a lot of thought. This includes understanding these figures for your business benefit.

Presently Active Loan Rates in India

In India, the business loan interest rate typically ranges between 8% and 24%. However, such interest rates are not fixed as they depend on the type of your business, loan tenure, and past financial record, among other factors. Below is a breakdown of different business loans together with their respective usual interest rates:

1. Term Loans: 8% to 14%

2. Working Capital Loans: 10% to 20%

3. Short-Term Loans: 12% to 22%

4. Unsecured Loans: 16% to 24%

5. SME Loans: 8% to 18%

6. Micro Loans: 9% to 18%

However, these may vary depending on inflation, market conditions, and RBI policy at any given time. Thus, it is advisable to check with the lender for the up-to-date rates.

Factors Affecting Business Loan Interest Rates

Several factors affect business loan interest rates. These can vary from lender to lender. Here are some key considerations:

1. Credit Score — A person with a high credit rating has a higher chance of getting lower interest rates when borrowing loans than those with poor scores. Such people are viewed as less risky and enjoy better lending terms from loan providers.

2. Business Type — High-risk industries attract higher interest rates for their loans. As such, startups or organizations dealing in areas without legal frameworks may have to pay more.

3. Loan Amount — Larger loan amounts attract lower rates of interest. Normally, lenders always give out lower interest rates for bigger loans because it takes longer to pay them back.

4. Repayment Term — Basically, short-term loans usually have lower interest than long-term ones. 

5. Collateral — Interest rates tend to be lower for secured loans (loans against property or other assets). Unsecured loans, on the other hand, may have higher rates since they are considered riskier by lenders.

Types of Business Loans and Their Interest Rates

However, the loan types have their own rates of interest. Here are a few types of business loans in India:

1. Term Loans

• Interest Rate: 8% to 14%

• Repayment Period: 1 year to 10 years

These loans are suitable for buying machines, equipment or lands.

2. Working Capital Loans

• Interest Rate: 10% to 20%

• Repayment Period: 6 months to 3 years

These short-term credits meet the usual operating expenses (utilities, salary, procurement).

3. Short-term Loans

• Interest Rate: 12% to 22%

• Repayment Period: 1 month to 1 year

These are credits obtained by those enterprises that require quick cash for immediate purposes.

4. Unsecured Loans

• Interest Rate: 16% to 24%

• Repayment Period: 1 year to 5 years

The lack of security in these types of debts comes with an increased cost of borrowing for lenders as it is considered risky.

4. SME Loans

• Interest Rate: 8% to 18%

• Repayment Period: 3 to 5 years

Small-medium enterprises can find very flexible deals on these types of credits.

5. Micro Loans

• Interest Rate: 9% to 18%

• Repayment Period: Up to 3 years

Small businesses with short-term fund requirements might take this to start operations.

Note:

Specific details such as interest rates and repayment terms can vary depending on the lender and the borrower’s profile. It's always best to verify the latest terms from specific financial institutions.

How to Reduce Business Loan Interest Rates

To get the lowest possible business loan interest rate, follow the steps below;

1. Maintain Good Credit Score — Businesses with higher credit scores are offered lower rates by most financial institutions.

2. Offer Collateral — This will get you lower rates by offering collateral for your business.

3. Negotiate — If a very strong credit history has been established, don’t hesitate to talk to lenders about the repayment terms.

4. Consider Government Schemes — The Indian government offers several schemes for MSMEs (Micro, Small, and Medium Enterprises), often with subsidised interest rates.

5. Use an Income Tax Saving Calculator — Planning your finances well and using tools like the income tax saving calculator can help you manage your cash flow, sometimes enabling better rates.

How to Calculate Your EMI

An income tax saving calculator or EMI calculator will give you a clear picture of how interest rate impacts your loan. By inserting details like principal amount, interest rate and tenure, these tools will provide monthly estimates of what you should pay. This can help you plan your finances and manage your cash flow effectively.

The Bottom Line

The kind of business loan interest rate you will get is affected by several factors like your credit score, the type of loan taken and the duration for repayment. To ensure you get the best deal, compare interest rates from different lenders and understand the terms and conditions. 

Moreover, an income tax saving calculator and other financial management tools should be used. An entrepreneur expanding his/her venture or managing daily operations must ensure an effective financial plan by securing the proper funding at market rates.